Facts of the Case:

The petitioners sought a declaration that the Clause 2 of Circular No.181/13/2022-GST dated 10.11.2022 was ultra vires the CGST Act and violative of Article 14 of the Constitution of India, as it imposed restrictions on the refund of unutilised Input Tax Credit (ITC) on account of inverted duty structure in respect of goods falling under Chapters 15 and 27. The challenge arose in the context of Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022, which specified that for certain goods, no refund of ITC would be allowed where the input tax rate was higher than the output tax rate, effective from 18.07.2022. The Circular clarified that this restriction would apply to all refund applications filed on or after 18.07.2022, including those pertaining to periods before the notification.

The Petitioner contended that this clarification improperly denied refunds for ITC accumulated prior to 18.07.2022, even if applications were filed after that date, creating an artificial classification of taxpayers and depriving them of refunds legally due under Section 54 of the CGST Act. Further, the petitioner relied on Andhra Pradesh High Court in Priyanka Refineries Pvt. Ltd. v. Deputy Commissioner, where the Court held that Circulars cannot override statutory provisions and clarified that the Notification was only prospective, so ITC accumulated before 18.07.2022 remained refundable. This judgment was upheld by the Supreme Court. Also, in the case of Patanjali Foods Ltd. v. Union of India, the Gujarat High Court struck down restrictions in Circulars that denied refunds for periods prior to a notification while accepting applications filed post-notification within statutory limits.

The Revenue argued that these High Court decisions were not binding in law, but did not offer a substantive reason for adopting a different view.

Issue:

Whether Clause 2 of Circular No.181/13/2022-GST is legally valid in restricting refunds of unutilised ITC for applications filed before 18.07.2022.  Whether the Circular violates Section 54 of the CGST Act and Article 14 of the Constitution, by creating an artificial distinction between taxpayers based on the filing date of the refund application.  Whether refund applications filed within statutory limits for periods prior to the notification can be denied solely because they were filed after the notification date.

Held that:

The High Court held that Clause 2 of Circular No.181/13/2022-GST was ultra vires Section 54 of the CGST Act and violative of Article 14. The Court relied extensively on the reasoning in Priyanka Refineries (AP HC) and Patanjali Foods (Gujarat HC). It observed that Notification No.09/2022, which restricted refund of ITC, explicitly applied prospectively from 18.07.2022, and ITC accumulated prior to that date could not be denied. The clarification in the Circular attempting to deny refunds for applications pending before 18.07.2022 was illogical, arbitrary, and inconsistent with the statutory scheme. By creating an artificial classification of taxpayers based solely on the date of filing the refund application, the Circular violated the principle of equality before law under Article 14.

Further, the Court noted that any refunds granted under quasi-judicial orders cannot be withdrawn without proper legal challenge. In the present case, the respondents had sanctioned refunds in favor of petitioners, and no appeal or revision was filed to challenge these orders. Therefore, any subsequent issuance of show-cause notices to deny refunds was illegal and unsustainable. The High Court quashed the proceedings initiated by notice dated 04.06.2024 and directed that all pending refund applications be reconsidered without reliance on Clause 2 of the Circular, in accordance with Section 54 of the CGST Act.

The Court directed that all pending refund applications should be decided on merits in accordance with Section 54, without reliance on the impugned Circular.

Case Name:  M/s Vaibhav Edibles Private Limited, M/s Garg Edible Oil, M/s Kanpur Edibles Private Limited, M/s Hari Om Oil Mills Versus State of U.P. And 2 Others dated 13.11.2025

To read the complete judgement 2025 Taxo.online 3007